MILAN (Reuters) - The IMF raised doubts about a tax on financial trading a group of European states is due to bring in next year, saying other levies may be more efficient ways of obtaining revenues from the financial sector.
“According to the IMF there are other levies that could be better than the Financial Transaction Tax (FTT),” Carlo Cottarelli, head of the International Monetary Fund’s fiscal affairs division, told a business conference in Milan on Monday.
“A tax on transactions, in general, is not so sensible, it is something old-fashioned”, he said, adding a levy on the value added of the financial sector or a charge on bank assets would be more efficient.
Back in 2010, the IMF proposed a tax on banks’ profits and managers pay and a levy on assets as a mean of making banks contribute to the cost of cleaning up after the financial crisis but only few countries adopted on of these scheme.
An alliance of 11 European countries led by Germany and France are currently discussing the details of a tax on financial transactions on shares, bonds and derivatives.
Following concerns expressed by Italy and France about imposing the tax to government debt and legal challenges from Britain, however, the European Commission signaled readiness to soften the tax both reducing the rate on specific assets and delaying its roll-out.
“I don’t want to comment specifically on the FTT proposed by the European Commission, but it is clear that if you reduce the tax base you will have a impact on revenue,” Cottarelli said.
“Let’s see if the 11 European countries are able to find a good compromise on the tax base.”
Looking at the experience of Italy and France, where an FTT already exists, Cottarelli said such a levy had a negative impact on transaction volumes.
“Even if in Italy and France financial trading taxes have a low tax rate, there is evidence that the volume of transactions fell following the introduction of these taxes,” he said, adding there is no evidence the levy reduces the volatility of trading.
He cited a study which he said showed financial transaction volumes had declined by 15 percent in France.
The experience of France, however, could serve as a model for imposing a levy on high-frequency-trading, which is something more acceptable, he said.
Reporting by Francesca Landini; editing by Ron Askew